One of the most common mistakes that people make is confusing their credit report with their credit score. In addition, many people do not know what is included in a standard credit report. Being able to understand the two indicators is critical because they both reveal a lot about your financial history and directly impact your financial future. Understanding your credit score and credit report will help you identify financial strengths and weaknesses as well as take steps towards financial stability.
A credit report is an organized list of information compiled by lenders that includes records of payment history, payment totals, and payment frequency. Unlike the detailed history found on the credit report, your credit score is a simple numerical expression based on several pieces of data from the credit report. Credit scores range from 300 to 850, and higher scores are more desirable.
Many people have misconceptions about the types of information included on a standard credit report. Don’t be on the wrong side of this statistic, know what is contained within your record. Credit reports may include:
- A list of companies that have given the individual credit or loans
- The total amount for each loan or credit limit for each credit card
- How often a consumer pays credit or loans on time, and the amount paid
- Companies that have asked to see your credit report within a certain time period
- Personal address(es) and/or employers
- Other details of public record
Credit reports impact mortgage rates, credit card approvals, apartment rentals, and even job applications. For this reason, it is important to work toward a clean credit record and high credit score.
Your detailed financial history reveals all of the ups-and-downs of your past and it’s important to know who can see your records. Credit reports may be checked by the following:
- Mortgage lenders
- Utility companies
- Student loan lenders
- Insurance companies
- Government agencies
- Collection agencies
- Judgment creditors
- Entities that have a court order
A credit score helps lenders and others quickly determine the likelihood that you will repay your debt responsibly. A credit score may be checked by the following:
- Credit Card Companies
- Auto Dealers
- Retail Stores
You can steadily improve your credit score by paying bills on time, using credit cards responsibility, and keeping a low debt-to-income ratio. With some financial planning and responsible decisions, you can increase your credit score over time.
Don’t fret if your credit score is currently low. Scores constantly change to reflect the contents of your credit report. And likewise, don’t assume that you will maintain a high score with late payments and bad spending habits.
Don’t forget to frequently check your credit report. You can check your credit report online by using free credit check services at www.annualcreditreport.com. You are entitled to one credit report from each of the 3 credit reporting agencies every year. It’s a great idea to take advantage of this service and check one credit report every 4 months.
Regularly checking your credit report may help you catch inaccuracies in the record and help you spot possible signs of identity theft early.
According to a recent study by the Federal Trade Commission about a quarter of consumers have at least one potentially significant error in one of their three credit reports. These errors can result in increased scores and impact a person’s ability to open a credit card, purchase a home or even rent an apartment. If a consumer finds errors on their report they have the right to contact the reporting agency to fix them immediately.
It’s important to distinguish between credit reports and credit scores. Knowing the details of your credit report as well as the meaning of your credit score will help you identify financial strengths and weaknesses. With minimal effort you can be on your way to financial peace of mind.
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